As could be expected, the standout figure of Wednesday's session was the US Consumer Price Index (CPI) for September and this continued to support the Fed's roadmap in favour of further tightening. The reason was that the CPI increased overall by a tenth compared to the previous month, standing at 3.7% a.; although there was more “meat” in the fact that the core reading also rose by a tenth to mark a pace of advance of +2.6% a. This pace considerably exceeds the increase in wages, meaning that real incomes for workers are decreasing. According to the published data, the average hourly wage in September fell by -0.7% a. This is not a positive figure for the administration ahead of the midterm elections and it remains to be seen how long household savings can hold out.
Breaking it down, there was no surprise with energy. As expected, prices in this sector continued to advance firmly with a monthly growth of 5.2% and a year-on-year rate of 20.4%. The much-discussed gasoline rose by +9.1% m. and +20.4% y. Refining margins, distribution costs, seasonality, and demand for heating in winter also contributed to the price of heating fuel showing a strong +15.3% m. and +74.2% y. The problem with American inflation is that it seems to be a case of pressures of a rather widespread nature. Prices for recreational activities, used cars and trucks, education, airfares, medical care, and clothing all increased. While part of this can be attributed to tariffs and the situation in the energy sector, another part also points to persistent inflation.
It is worth noting that one of the usual suspects made a return. After months of declines, the inflation of car insurance returned to positive territory. This is a sector that, according to analysts' forecasts, was expected to continue underpinning the disinflation trend, but that is no longer the case. Another noteworthy figure was airfares, which increased by 22.4% y., marking the sixth consecutive month in which they rose by more than 20%, which is nothing more than an example of how the energy impact is spreading. On the other hand, the effect of AI continues as both computer hardware and peripherals and software recorded a record year-on-year increase of 9.7% and 28.4%, respectively.
The general idea is that any figure close to consensus would not alter the Fed's narrative for October; however, this data raises debate. For now, we at IM believe that the Federal Reserve is not acting considering arguments like those of Williams and Jefferson, suggesting that there is no rush to tighten monetary policy at this moment. However, this figure will open up a lot of debate and expectations for increases in December and 2027 are solidifying. We anticipate that the market will maintain its volatility in light of the publication of this key data, given that the Federal Reserve seems to be equally divided on the pace of rate hikes and, in the absence of future guidance.
The price data also represents a hard hurdle for the government. Many Americans base their perception of prices on levels prior to the pandemic. Since January 2020, overall inflation has increased by about 30%. In other words, the typical basket of goods and services that cost $1,000 then now costs approximately $1,300; a real impact on prices as midterm elections approach. Another point is that the inflation figure implies that the annual cost-of-living adjustment for tens of millions of beneficiaries of the Social Security retirement program will increase by 3.6% in 2027, compared to the 2.8% increase recorded in 2026. This occurs, moreover, in a context of changes in retirement finances, as older Americans increasingly turn to their investment accounts to finance their expenses.